The following transactions apply to Wade Company for 2013, the first year of operation:
1. Recognized $220,000 of service revenue earned on account.
2. Collected $162,000 from accounts receivable.
3. Paid $150,000 cash for operating expenses.
4. Adjusted the accounts to recognize uncollectible accounts expense. Wade uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 1 percent of sales on account.
The following transactions apply to Wade for 2014:
1. Recognized $398,000 of service revenue on account.
2. Collected $402,000 from accounts receivable.
3. Determined that $2,400 of the accounts receivable were uncollectible and wrote them off.
4. Collected $1,000 of an account that had previously been written off.
5. Paid $210,000 cash for operating expenses.
6. Adjusted the accounts to recognize uncollectible accounts expense for 2014. Wade estimates uncollectible accounts expense will be 0.5 percent of sales on account.
Required:
Complete the following requirements for 2013 and 2014. Complete all requirements for 2013 prior to beginning the requirements for 2014.
a. Identify the type of each transaction (asset source, asset use, asset exchange, or claims exchange).
b. Show the effect of each transaction on the elements of the financial statements, using a horizontal statements model like the one shown here. Use + for increase, Use - for decrease, and NA for not affected. Also, in the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example.
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c. Record the transactions in general journal form, and post them to T-accounts (begin 2014 with the ending T-account balances from 2013).
d. Prepare the income statement, statement of changes in stockholders equity, balance sheet, and statement of cash flows.
e. Prepare closing entries and post these closing entries to the T-accounts. Prepare the post closing trial balance.